Correlation Between DB Commodity and SP 500

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Can any of the company-specific risk be diversified away by investing in both DB Commodity and SP 500 at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining DB Commodity and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DB Commodity Index and SP 500 Technology, you can compare the effects of market volatilities on DB Commodity and SP 500 and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in DB Commodity with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of DB Commodity and SP 500.

Diversification Opportunities for DB Commodity and SP 500

-0.22
  Correlation Coefficient

Very good diversification

The 3 months correlation between DB Commodity and SP 500 is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding DB Commodity Index and SP 500 Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Technology and DB Commodity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on DB Commodity Index are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Technology has no effect on the direction of DB Commodity i.e., DB Commodity and SP 500 go up and down completely randomly.

Pair Corralation between DB Commodity and SP 500

Considering the 90-day investment horizon DB Commodity Index is expected to generate 0.89 times more return on investment than SP 500. However, DB Commodity Index is 1.12 times less risky than SP 500. It trades about 0.11 of its potential returns per unit of risk. SP 500 Technology is currently generating about 0.05 per unit of risk. If you would invest  1,310  in DB Commodity Index on May 13, 2022 and sell it today you would earn a total of  1,310  from holding DB Commodity Index or generate 100.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DB Commodity Index  vs.  SP 500 Technology

 Performance (%) 
       Timeline  
DB Commodity Index 
DB Commodity Performance
0 of 100
Over the last 90 days DB Commodity Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

DB Commodity Price Channel

SP 500 Technology 
SP 500 Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, SP 500 may actually be approaching a critical reversion point that can send shares even higher in September 2022.

SP 500 Price Channel

DB Commodity and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DB Commodity and SP 500

The main advantage of trading using opposite DB Commodity and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DB Commodity position performs unexpectedly, SP 500 can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SP 500 will offset losses from the drop in SP 500's long position.

DB Commodity Index

Pair trading matchups for DB Commodity

The idea behind DB Commodity Index and SP 500 Technology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

SP 500 Technology

Pair trading matchups for SP 500

Erie Indemnity vs. SP 500
Starbucks Corp vs. SP 500
Home Bancshares vs. SP 500
Boeing vs. SP 500
First Citizens vs. SP 500
Lpl Financial vs. SP 500
Bancfirst Corp vs. SP 500
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP 500 as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP 500's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP 500's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP 500 Technology.
Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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